Knights Apparel
Some years ago Joseph Bozich was watching his son play in a high school basketball game when
his vision started to become blurred. A day later he couldn’t read. His doctor suspected that Bozich
had a brain tumor, but tests revealed that the cause was multiple sclerosis. Luckily for Bozich, his
vision improved, and he has not suffered another attack, but the incident left him with a desire to
do something important in life—to somehow make a contribution to humanity. As founder and
CEO of Knights Apparel, a privately held company, Bozich realized he had the power to make
such a contribution. A former U.S. collegiate bodybuilding champion, Bozich got his start in
apparel working for Gold’s Gym, selling branded clothing to outside retailers. In 2000 he founded
Knights Apparel and started to build a business selling athletic clothing with college logos to
universities around America. Like most organizations in the apparel industry, Bozich relied on a
network of foreign suppliers to manufacture his products. The apparel industry is often accused of
using sweatshop suppliers based in poor nations where pay is low, hours are long, and working
conditions are awful. In 2005, Bozich wondered if it might be possible to change this—to source
product from less developed nations but to do so in a more ethical way, paying employees a decent
wage and providing them with good working conditions. After some investigation, Bozich decided
to establish his own “model factory” in the Dominican Republic. He purchased a factory that had
previously been used by a Korean company to make baseball caps for Nike and Reebok. The
Korean company had moved production to a lower-wage country in 2007, throwing some 1,200
out of work. The factory now produces under a new label, Alta Gracia, which is derived from the
name of the local town, Ville Altagracia, and means “exalted grace.” The minimum wage in the
area is $147 a month, a figure so low that it is insufficient to live on. Bozich’s factory pays its
workers more than 3.5 times this amount. According study done by a workers’ rights group, this is
the pay level required to support a family of four in the region. Bozich has allowed his employees
to unionize and has made investments in safety and good working conditions a priority. Knights
Apparel invested some $500,000 in upgrading the factory with features that include bright lights,
five new sewing lines, and ergonomic chairs for employees, which many seamstresses thought
were for the managers. Clearly the higher pay translates into higher costs. Bozich calculates that
the factory’s cost per unit of clothing is 20 percent higher than if it paid the minimum wage. Given
the competitive nature of the market for apparel, Knights cannot pass this cost increase on to
wholesalers and retailers in the form of higher prices, so Bozich has elected to take smaller profit
margins. For a product such as a basic T-shirt with a logo, the manufacturing cost at Alta Gracia is
$4.80, about 80 cents more than if the pay was minimum wage. The shirt is sold for $8 to
wholesalers, with most retailers marking them up to about $18. Bozich realizes he has a strong
marketing message built around “fair labor.” This is particularly useful selling into colleges.
Student groups have often agitated for boycotts against companies such as Nike and Reebok for
using sweatshop labor. (Since being the target of protests in the 1990s, Nike has put rigorous
procedures in place for auditing the operations of suppliers to make sure they adhere to Nike’s
own code of ethics for suppliers.) The fair labor” marketing message seems to be resonating with
colleges. Several universities have backed the project. Duke University’s bookstore, for example,
placed an initial order for $25,000 of merchandise. Barnes & Noble College Booksellers planned
to have Alta Gracia products at some 350 stores in college campuses by early 2011. Barnes &
Noble plans to promote the product heavily and expects to take lower margins to begin with. The
United Students Against Sweatshops, a nationwide student group that often attacks apparel
manufacturers, has also backed the project and has been distributing flyers at college bookstores
urging students to purchase the Alta Gracia shirts. Companies such as Nike and Reebok that also
serve the college market are reportedly watching what happens carefully.
Case Discussion Questions
1. The case states that higher wage rates at the Alta Gracia factory have raised the cost per item
by 20 percent. Can you see any way in which the philosophy with regard to pay and working
conditions at Alta Gracia might lower costs in the long run?
2. Do you think Joseph Bozich would have been able to try the Alta Gracia experiment if
Knights Apparel was a publicly traded enterprise?
3. What do you think might stand in the way of Alta Gracia becoming successful? What
strategies might Bozich adopt to minimize the risk of failure while still adhering to his high ethical
standards?
4. Alta Gracia serves a niche market, colleges, where there is higher awareness of ethical issues
in apparel production. Do you think the strategy would work if the company tried to sell to the
mass market through retailers such as Walmart?
5. Is it ethical for apparel companies to move production around the world in pursuit of the
lowest possible labor costs, even if that means paying wage rates that are below a living wage?
What if the alternative is not to produce at all?
6. To what extent does the Alta Gracia experiment suggest that good ethics are also good
business practice?